The index of London’s leading shares closed up 2.9pc at 4965 as investors shrugged off the misery caused last week by unexpectedly poor US economic data and fears over eurozone stability.
Following a US holiday on Monday, data yesterday showed the US services sector grew in June but at a slower rate than expected.
“Despite the recent shift in economic data releases that have disappointed investors and renewed fears of another recession, the underlying fundamentals do not yet point to a double-dip,” said Angus Campbell, head of sales at Capital Spreads.
“The economic numbers out today confirm that the economy is expanding and growth, while possibly slowing, will not go back into the red as things stand.
“With miners leading the way, this has given the bulls an excuse to get back into the market that has fallen significantly in the last few weeks and now looks attractive to many investors.”
In the UK the mining sector helped to boost the FTSE 100 to a one-week high following sharp falls in previous sessions.
The positive sentiment spread throughout Europe with the Spanish IBEX 35 closing up 3.6pc at 9615, while France’s CAC 40 rose 2.7pc to 3423.36 and Germany’s DAX increased 2.2pc to 5940.98.
However, the positive sentiment did not last the day on Wall Street. The Dow Jones drifted slightly lower in the afternoon session – down by 0.1pc at 9675.81 in late trading – after a strong start that saw it put on more than 170 200 points to 9857.
Economists believe that while a global double-dip recession is not the most likely scenario, the threat has increased over recent weeks as signs have emerged that the US recovery is losing steam, and concern over the eurozone’s debt crisis remains.
Michael Dicks, chief economist at Barclays Wealth, said there was a one in three chance of a double-dip recession in the UK next year. He said risks to the economy included the fiscal tightening process which has already been set in motion by the Coalition and could have a greater negative impact on growth than expected.
Mr Dicks added there was concern that exports may not be able to provide the boost that is hoped for, because of weak demand in the UK’s key export markets, and that persistently higher-than-expected inflation could force the Bank of England’s Monetary Policy Committee to raise interest rates.
“All in all, we would say that it is more likely than not that the fiscal tightening takes the edge off of the recovery, rather than completely wrecking it. But, a double-dip scenario certainly cannot be completely ruled out,” he said.